Thank you, and thank you for joining us for the discussion of Paychex's third quarter fiscal 2017 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer.

This morning, before the market opened, we released our financial results for the third quarter ended February 28, 2017. Our Form 10-Q will be filed with the SEC within the next few days, and you can access our earnings release and the Form 10-Q on our Investor Relations web page. This teleconference is being broadcast over the Internet and will be archived and available on our website for about 30 days.

On today's call, I will update you on the results of our business in the third quarter, and Efrain will review our financial results and discuss our full year guidance. After that, we'll open it up for questions.

Our third quarter results marked continued progress across our major product lines. Total service revenue for the third quarter grew 6% year-over-year. Our cloud-based HCM, human capital management services, continued to show strong growth. We are encouraged by the growth in small business optimism that's occurred in the recent months, and our latest Paychex IHS Small Business Jobs Index has shown an improving pace of employment growth since the election. With 3 months of improvement, we anticipate a continuation of jobs growth, and the administration's agenda advocates for lower taxes and fewer regulations, which we hope will likely lead to a more robust environment for small businesses, including investment in HCM solutions. We are confident that we are well positioned to support our clients in successfully navigating through the many future changes we expect on the horizon.

On March 24, House Republicans abandoned the proposed bill to repeal and replace the Affordable Care Act. Therefore, the requirements, including the need for health insurance offerings for employees of applicable large employers, the annual compliance filings and the penalties remain in place for the foreseeable future. We have been successful in responding to these needs for our clients and have maintained a good client retention level for these services, and we now expect that to continue.

We have recently announced the expansion of our portfolio of partners and solutions that provide investment and administrative fiduciary protection to 401(k) plan sponsors. With these services, we are making it easier for advisers and plan sponsors to offer investment options in their 401(k) plan that allow them to keep up with the demand of the ever-changing regulatory landscape. Our clients can now choose from a suite of fiduciary response solutions to help them with the complicated investment selection process by outsourcing to professional firms. We're very proud of our leadership position in this 401(k)-recordkeeping space and will continue to make enhancements for our clients to keep our leadership.

During the third quarter, we experienced some mixed results for payroll sales. These results reflected progress in the small market sales and a continuation of the trends in the mid-market that we discussed in the second quarter call. Mid-market payroll sales decreased from the high level of activity experienced a year ago, which were driven in part by the Affordable Care Act requirements. Compared to a year ago, this has impacted the number and size of clients sold during the selling season.

Our complete HR outsourcing solutions have continued to demonstrate strong growth in the marketplace. And as noted previously, we are serving about 1 million worksite employees through a combination of our HR Services.

For all of our products, we maintain our focus and continuous improvement in our software-as-a-service technology platforms, value-added service offerings and operational efficiencies. This year, enhancements to our Paychex Flex platform, including mobile offerings, HR analytics, time and attendance solutions and paperless onboarding of new employees, has helped drive increased adoption of our mobile app and double-digit growth of our time and attendance solutions.

In December, we were honored with the Brandon Hall Group bronze medal for the second year in a row. This award recognized Paychex Flex for the best advanced in HR or workforce management technology for small- and medium-size businesses.

Paychex also received other important recognition in the third quarter. For the ninth time, we were honored to be named a World's Most Ethical Company by Ethisphere Institute. I'm extremely proud of this award, proud of the integrity of our 14,000 employees who make it a point to do the right thing every day for our -- their clients, coworkers and the communities in which we live.

Also, our training organization were honored to be ranked #20 on the list of the Top 125 training organizations by Training magazine, up 11 spots over the last year. The employees in the Paychex Learning and Development Center do an amazing job, providing more than 1 million hours -- training hours over the last fiscal year. Learning and development is a large part of the culture here at Paychex, and we take pride in the outstanding programs created and delivered by this team of talented individuals.

We also celebrated 1 year -- the 1 year anniversary of Advanced Partners acquisition in December and remain very pleased with the contributions that team has brought to our company. Their performance has been strong, and we look forward to the growing opportunities that are in store for them. In summary, we marked another quarter of progress and growth, and I appreciate the great work and efforts of our Paychex employees and management team during a busy calendar year-end and selling seat.

I will now turn the call over to Efrain to review our financial results in more detail. Efrain?

Thanks, and good morning to everyone. I'd like to remind everyone that today's conference call will contain forward-looking statement that refer to future events. Remember the customary disclosures.

As Marty indicated, third quarter financial results for fiscal 2017 showed continued progress and growth. Here are some of the key highlights for third quarter and 9 months. I'll provide greater detail in certain areas and wrap with a review of our 2017 outlook, including a look forward to what we expect in Q4.

Total service revenue grew 6% for the third quarter to $783 million and 7% for the 9 months to $2.3 billion. Interest on funds held for clients increased 11% for the third quarter and 8% for the 9 months to $13 million and $37 million, respectively. These changes were primarily driven by slightly higher average interest rates earned.

Expenses increased 4% for the third quarter and 6% year-to-date. The expense growth in both periods was impacted by higher wages and related comp expenses due to growth in headcount in our operations area primarily. Expense growth was moderated or tempered by lower variable selling costs.

Our operating margin was 38.5% for the third quarter and 40% year-to-date, improving from 37.2% and 39.6% for the respective prior year period. The improvement in the third quarter was aided by lower variable selling expenses that I mentioned. We continue to maintain industry-leading margins while investing in our operations.

Our effective income tax rate was 34.2% for the third quarter and 34.1% for the 9 month compared to 36% and 33.9% for the respective period last year. The lower effective income tax rates in fiscal 2017 are due to these discrete tax items. For fiscal 2017, we implemented new accounting guidance related to employee stock-based compensation. This has resulted in discrete tax benefits recognized upon exercise or lapse of stock-based awards. The impact of discrete tax benefits year-to-date increased diluted earnings per share by approximately $0.05.

In the first quarter of fiscal 2016, looking back to last year, we recognized a net tax benefit on income from prior year's -- prior tax years related to customer-facing software we produced. This drove the lower tax rate for the 9-month period. So when you look at it, we've got a table in the press release that reconciled the 2. They largely offset each other year-over-year.

Net income increased 12% to $203 million for the third quarter and 7% to $622 million for the 9 months. Diluted EPS also increased 12% to $0.56 per share in the third quarter and 7% to $1.71 per share for the 9 months. On a non-GAAP basis, adjusted net income increased 10% to $199 million for the third quarter and 8% to $605 million for the 9 months.

Adjusted diluted earnings per share also increased 10% to $0.55 per share for the third quarter and 8% to $1.66 per share for the 9 months. Note that these 2 non-GAAP measures exclude the discrete items previously mentioned. Please refer to the press release for a discussion of the non-GAAP measures and a reconciliation to the related measures under GAAP, spelled out clearly in the table in the press release again.

Payroll revenue. It increased 2% for the third quarter to $447 million and 3% to $1.3 billion year-to-date. We benefited from increases in client base and revenue per check. Revenue per check grew as a result of price increases net of discounting. The 2% in the -- growth in the third quarter was tempered by approximately 1% due to 1 less processing day compared to the prior year period.

The year-to-date payroll service revenue growth of 3% includes the impact of Advance Partners. The impact of Advance Partners on the year-to-date payroll service revenue growth was partially offset by the impact of 1 less processing day compared to the prior year period. And when you net both of them, you get a increase of about 0.5% to the overall growth rate.

Similar to the emphasis I made last quarter with the evolving nature of our business to an HCM service provider, our offerings of bundled products to our customers have increased. Revenue from those bundles is allocated among payroll and HRS. Payroll growth remained steady in the low single digits with HRS revenue growth reflected sale of more service to the client and the greater revenue per client. Average client size trended down slightly, impacting overall payroll revenue growth.

HRS increased 12% to $336 million for the third quarter and 13% to $978 million for the 9 months. The increase reflects continued growth in our client base across all major HCM services, including our comprehensive HR outsourcing services, retirement, attendance and HR administration. Retirement services also reflected an increase in asset fee revenue earned on the asset value of participant funds.

Insurance services benefit from continued growth in revenue from our ACA compliance services as well as growth in the number of health and benefit applicants, along with higher average premiums and an increase in our workers' compensation product. For the 9 months, the impact of Advance Partners was approximately 1.5% on the growth of HRS revenue.

Investments in income. Our goal is the same as it's always been: to protect principal and optimize liquidity. On the short-term side, primary short-term vehicles are bank-demand deposit accounts and variable-rate demand notes. In our longer-term portfolio, we invest primarily in high-credit-quality municipal bonds, corporate bonds and U.S. government securities. Our long-term portfolio has an average yield of 1.7% and an average duration of 3.3 years, currently.

Our combined portfolios have earned an average rate of return of 1.2% for both the third quarter and the 9 months, up from 1.0% and 1.1%, respectively, from the prior year period. In December 2016, the Fed funds rate was increased by 25 basis points and the Fed again increased the interest rate by another 25 basis points in early March.

Average investment balances for funds held for clients were relatively flat for the third quarter and down approximately 1% year-to-date. The impact from growth from the client base was offset by timing of certain remittances to taxing authorities.

I'll now walk you through the highlights of our financial position. It remains strong with cash and total corporate investments of $844 million as of the end of the quarter. Funds held for clients were -- as of the end of the quarter were $4.8 billion compared to $4 billion as of May 31, 2016. Funds held for clients vary widely, as you all know, and on a day-to-day basis. They average $4.5 billion for the third quarter and $4.0 billion for the 9 months.

Our total available sale -- available-for-sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $9 million as of the end of the quarter compared with net unrealized gains of $48 million as of May 31, 2016. The fluctuation is related to changes of market rates of interest on intermediate-term bond.

Total stockholders' equity was $1.9 billion as of February 28, reflecting $497 million in dividends paid and $166 million of repurchases of Paychex common stock. Our return on equity for the past 12 months was a sterling 41%.

Our cash flows from operations were $769 million for the first 9 months, a decrease of 3% from the prior year period. The decrease was the result of fluctuations in working capital offset by higher net income and noncash adjustments.

Let's turn to fiscal 2017 guidance for the remainder of the year. We remind you that our outlook is based upon our current view of economic and interest rate conditions continuing with no significant changes. Our guidance for the full year is as follows: Full year payroll service revenue growth is anticipated to be at the low end of the range of 3% to 4% that we previously provided. In addition, we anticipate payroll revenue growth in the fourth quarter will be below the range of full year guidance and will be approximately 2%.

Full year HRS revenue growth is anticipated to remain in the range of 12% to 14%. We anticipate HRS revenue growth in the fourth quarter will be in the range of 10% to 11%. Full year total service revenue is expected to remain in the range of 7% to 8%, albeit at the low end.

Full year increase on funds held for client is anticipated to increase in the upper single digit. The impact of the recent increases in short-term rates will be modest for the balance of the year, but will become more accretive in fiscal 2018.

Operating margins are anticipated to be consistent with guidance previously provided. Our effective tax rate for the year is expected to be approximately 35%. GAAP basis, net income growth is anticipated to be approximately 7%. Adjusted net income, which is a non-GAAP measure that excludes discrete items -- discrete tax items, is anticipated to grow approximately 8%. This is consistent with the guidance that we have previously given in June.

Just on the mixed results in sales, can you talk about how it came in against your expectations? And then in that context, you called out, Efrain, the lower variable sales expenses. So again, is this a function of just the tough comp from last year on sales? Or is it lower sales versus your expectations, and that's what drove the leverage on that line?

Yes, I'll start. It's Marty. I think what we saw, as I mentioned, was small market was fine, and mid-market was a little slower than we anticipated and I would say, certainly down. It decreased from last year, but we knew that there was a real bump in second and third quarters for Affordable Care Act sales, our ESR -- our employee -- our service product there and -- to help them with ACA. And I think that drove a lot of payroll sales and other product as well. And that seemed to have some impact this year a little bit in slowing it down. So I'd say down from last year because of the kind of the frenzy of ACA buying and so a little bit slower in the mid-market than we thought. You want to talk about...?

Yes. I think, Danyal, the demand environment was different than what we thought it would be when we came into the year. To Marty's point, as we were exiting the year, we thought not only would there be increased demand over what we saw with ACA, but we built our plans based on that assumption. And what we saw in the -- starting in the second quarter, with the comments that Marty gave, was we started to see more hesitancy. And then as we went into third quarter, it was clear the demand environment was different than where -- what we were in last year. And as a consequence to that, mid-market sales -- the comments that Marty made about mid-market sales were what we saw. On the smaller end of the market, the market looked pretty robust. We did very well, but it was a bit -- that scenario was a little bit different than what we had anticipated going into the year.

No, not really. And what we're talking about there is that last year, not only did it drive Affordable Care Act product sales, but I think it drove decision-making in payroll, in payroll products, time and attendance, kind of everything. Hey, let's buy it at the same time. Everything is well integrated from one service provider. And so we saw that bump last year. So not only did we have the Affordable Care Act product sales up last year as people needed to have the product in place, but they were making other buying decisions that I think actually got pulled forward to some degree. Then when we projected this year, we, as Efrain just mentioned, we didn't -- I don't think we saw that as much of a blip because of Affordable Care Act as it turned out to be, and so we're kind of -- we got down to a more normalized kind of mid-market kind of buying or something. Plus, then I think you have the election on top of it and the new administration. And it seems like, in general, businesses in the -- particularly in the mid-market size, are being a little hesitant to what exactly do they have to do. For a while, they would have thought they would have -- they would -- could've dropped their insurance if they didn't want to do it. And now, of course, that's reversed. And so I think there's just a lot of kind of state of flux right now with many businesses.

I guess, on -- did you see in the year-end season any change in the decision of your PEO customers to take your insurance offerings? And so is there any revenue trajectory we should think for the new calendar year? Any impact of that, like lower pass-throughs or anything?

Yes. I think you'll see a little bit of it. I think there's -- that's part of the reason why I called third quarter at 10% to 11%. So we've seen a little bit less pass-through, but I would say it's uneven, Gary. We've signed some pretty big clients that had out their attachment to. But overall, the trend's been lower attachment this year.

Okay. And then you had cited at the beginning some of the optimistic data, like your small business survey. And we've seen a lot of those forward-looking data points be very optimistic. The NFIB's been on fire. But yet, I think a lot of the hard data in the economy hasn't really seen that optimism. How are you thinking about that? It -- do you think that your customers are going to need to see Washington get some of the pro-growth policies done before they change? Or in the small end, are you actually seeing those optimism surveys and your hiring survey and all of that start to flow through into tangible bookings at this point?

Well, yes. It's funny, Gary. As you said, the optimism's been very high off the charts, and our survey -- or our index for the last 3 months has shown increasingly small business hiring is up. Now it's interesting when you dig into that, it's -- it is -- we're seeing more part-time jobs kind of coming back. Others -- what we would classify as other services, discretionary services and some construction in pockets where it's like in the southeast and so forth. So we're not seeing a real big jump in our own clients other than the fact that it's slowly increasing. And I do think that, given especially the last 90 days or so, I think there's just a lot of confusion as to: a, is Affordable Care Act in or out? Is time and attendance -- think about the time and attendance, we had a lot of selling of time and attendance solutions with the rules, then they got held up, and I'm not sure they're ever going to go into effect in the -- on the overtime rules. So I think there is a lot of confusion now. But definitely, we're seeing on the index some employment increases, but I wouldn't say it's anything really strong yet that's really showing up completely in the number.

Could you guys just update us, and I think you talked about this a little bit already. But just update us on how you're thinking about your short-term versus long-term portfolio mix, the impact of the Fed rate increase on the yield curve that you've seen? Just maybe speaking to that $8 million number and updating that, that you talked about last quarter, I think that would be helpful to start.

Yes, thanks. So just sort of level setting what we anticipate. Every quarter-point rise gives us about -- the way the portfolio is currently configured, about $3.5 million of benefit. We don't always see that so we, from a projection standpoint, it typically translates to about $3 million. The Fed rate rise that just occurred in March, that would expect it to -- be expected to translate into about $2 million next year. But raises that have already occurred will add somewhere in the range of $6 million to $7 million. So if I had to call it right now and there are no further rate rises, I'd be probably somewhere in the range of $8 million to $9 million for the current raises the Fed has done. That's with no adjustments to the duration of the portfolio. So again, once again, as I said last quarter, I wouldn't take that to the bank because we're looking at how we configure the portfolio based on an environment where now, it looks increasingly like there will be, at least this morning, a couple more rate rises by the end of the year. That increasingly seems to be the trajectory the Fed is on. So we will -- we'll take a look at that and then update on the guidance. But certainly, that's trending in the right way for us.

And then just 2 more quick follow-ups. If you don't mind, as you've done in the past just on Advance Partners, just a breakout in terms of how that impacted you on the top line and then perhaps, maybe expenses, too? I think there were 22 days of Advance Partners in the quarter. Correct me if I'm wrong there. And then just last...

And then I was just going to say lastly, if you just speak to the -- what drove that double-digit growth you saw in time and attendance and just the sustainability of that going forward, again, with some of the uncertainty around those rules?

Yes. So we netted the 2, Advance and -- in my comments, Advance and the extra day, the combination of those 2 is about 1% year-to-date. So Advance is a little bit more than half of that. I'm sorry, Advance obviously contributed a little bit more than 1/2 of that 1%, and then the extra day took out the rest. So I hope that's reasonably clear. And then I'll let Marty talk to the time and attendance.

Yes, on the time and attendance, I think, one, the overtime rules came out in the fall, the proposed overtime rules, and they were going to take effect December 1. And so I think that drove a lot of clients to discuss with sales reps about solutions. At the same time, we added to our time and attendance portfolio what we call time and attendance essentials, Flex Time Essentials, which was a lower-end product that's more simple and easy for smaller businesses. So we've seen a real uptick I think, one, driven by the overtime rules that were supposed to go into effect. And then once clients got into that, I think they've seen the need for tracking time better, and I don't think that's going to go away. That seems to have a very strong stick. It's nicely integrated into our payroll platform. And again, as I said, we have multiple options of both Flex time and attendance and Flex time and attendance essentials as well as a number of different clocks that are now available. So I think it's just a bigger increase in the need or the want for time tracking.

Just wanted to circle back on the discussion earlier about your small business index. I know you've been tracking this for a while, but I'm just curious what the correlation is between changes in that index and changes in your business. How long it takes for you to see that? And if you see that more on the payroll side or the HRS side?

Yes. I mean, the correlation obviously is usually pretty good. If taken -- this is a sample. This index is done on 350,000 of our clients and on under-50 employees. So again, this is focused on the under-50 side of the market. What that showed was that we've continued to have small business -- an improvement in small business job growth hiring over the last 3 months. We kind of peaked the last year around the April time frame a year ago, April into May. And then that dropped off in the fall and then has come back and kind of recovered that. If you look at it on a full year-over-year basis, kind of March to March, we're about flat to last year's index. So that's pretty much kind of what we're seeing, which is there's some job growth but it's fairly flat to last year as far as kind of employees per client type of thing. But it does indicate that it looks like it's on a nice upward trend and that the optimism that -- like on the NFIB Index, that's off the charts, is starting to flow into real job increases. But again, if you compare year-over-year, it's fairly flat because we've kind of recovered from where the job growth dropped off in the fall.

Yes, that's correct. And just to build on what Marty said. So if you look at it on a same-store basis, we're flat to down in terms of employees per clients, especially in the under-50 space, but really across the base because it's predominantly small market. So we have yet to see in our client base a significant uptick in client employees. We'd like to see it, but haven't seen it yet.

Yes. So -- and if you refer to the press release, Jeff, you'll see that we recorded, I believe, the amount -- look on the table, I believe it's $3.2 million that we recorded in the quarter for discrete tax items related to stock comp expense. So I called out $0.05 for the year. But in the quarter, it was -- it added about $0.01 to earnings so...

I don't know yet. That -- one of the things that's interesting about that pronouncement is it varies from quarter-to-quarter, depending on whether there are -- the amount and number -- the quantity and value of the shares exercised. So at this point, I wouldn't anticipate any, but I don't know. I'll have to see as we get into Q4. Apologies for not answering initially.

And then looking a little bit more closely at the HR Services, how much of the growth that you saw in retirement was related to this -- the increases in perhaps market action versus signing up net new client?

We had both in the quarter, but we had -- because market was up in the third quarter, we had a good bump. I wouldn't -- I can't quantify it any more than that. Overall, it's not material to HRS results, but it was bigger than we had anticipated.

And then from a revenue perspective, was third quarter the toughest Affordable Care Act-related comparison? And would fourth quarter be pretty much like-for-like? Or ACA-related revenue's still ramping up in the fourth quarter of last year?

No, just the opposite. ACA is going to start to now slow down after Q3. So although you're right that we had a significant compare in Q3, we were also carrying through -- because of the way revenue is recognized in Q3, a chunk of that revenue gets recognized in the third quarter. And now we anniversary the uplift in ACA, and it starts -- it start -- the compares start to show slowing on the revenue, which is why I called out HRS being in the range that I mentioned. So that's really driven by PEO and Affordable Care Act.

It will continue to grow in the fourth quarter and then decline -- well, we'll see when we issue guidance. So I think we've hit -- we hit the high-water mark of growth in Affordable Care Act revenue. We'll still have growth in fourth quarter, and then we'll see as we go into next year.

Sorry. I was hoping if you could maybe just talk a little bit about, given everything you said about the sales momentum, we're in kind of like a little bit of a softness in sales right now. And then what you expect for PEO and other trends? How you'd roll that up in terms of the kind of puts and takes as we think about modeling fiscal '18, and the impact of lease of tax relative to the long-term growth target that the company laid out previously?

Yes. Hey, it's early but right now, in the absence of other factors, which again, I hesitate to qualify yet, we would see payroll service revenue trending the way we've seen it this year. Don't anticipate that it will accelerate from where it is on that side. HRS will be impacted going into next year by the Affordable Care Act anniversary-ing that growth, so I'd expect growth to be lower. And then on the interest rate side, I'd expect that to be substantially upward. We're going to have to sort of put that in the tumbler and see where it comes down in terms of guidance. But I would say that, that's the thinking at this point, and I'd label it as preliminary.

That's helpful. And then maybe if you could kind of give some color relative to ACA comments you made before. What are your clients telling you about -- in the mid-market leave out? If there's no changes to ACA and basically the kind of current attempt to modify or repeal it have kind of died, what would you expect in terms of new client decision-making on leaving or not?

Well, I think, yes, it will be much stronger. Obviously, I think we feel -- actually, the way things have turned out when you think about it from a Paychex impact, the Affordable Care Act kind of being delayed now and looks like it may take some time to get to change and tax reform kind of being moved up first now to be worked on is very good for us. One, it gives us stability and retention of the revenue for ACA. And two, I think it will drive some sale -- more sales in ACA as well for even clients who were still kind of new clients of that size but also clients who were holding on or decided they want to change from somebody else now that kind of the thing has settled down. So I think that's going to be good for us. I think the initial sales are kind of over, like the clients or the majority of our clients who needed it, have it. But the good news is, they'll keep it certainly longer. And now the focus will be on tax reform, which tends to be very good for us if it comes out the way we're hoping.

Just sort of building on your last comment there, Marty, specifically about the ACA module. I mean, I guess, you could apply it more broadly. But how do you guys view that as competitively positioned? Do you think that, that module in and of itself is something where you have a differentiated solution that can drive takeaways? Or is really the value that you have it and you can provide it as part of your full sort of bundle and full stack solution?

I think it certainly is very competitive. We were kind of the first out to the market with it. I think a lot of competitors have caught up to a certain degree, but I think we have a very good monitoring tool and have made, from the first year a year ago, have made a lot of improvements in the way we handle the filings themselves and the amount of work that the clients had to do. We saw a very large improvement in not only what the client experienced, but what our operational efficiency of handling the filings and filing the forms, getting them to the client employees and so forth. I think it's very competitive, if not more competitive, but it's certainly the -- probably the biggest thing is, a, it is part of a bigger bundle of an integrated package that we can sell to those mid-market clients, actually anywhere probably kind of 40 employees to above. So I think very competitive, and we'll continue to look to see if we can do more with it. But there's not a lot more development that's needed on that product. It's now about selling it and maybe hopefully taking share from some of the competitors as well.

That's helpful. Then just the second one for me. You talked about the small business indexes and hope of improved hiring. Have you seen, at least in conversation with clients or maybe sort of the solutions that they're looking for, a shift of focus from -- seems like a lot of things are based on compliance now. Are your clients more thinking about growth and solutions that can help them to manage growth and manage potential increases in their hiring, so like a growth shift in their mentality?

Yes, yes. I do think to some degree, there is. The big change we've seen over the last few years is that need for HCM, for HR support, to come down in size. And so where you wouldn't sell that until clients were 30 or 40 employees, now you're seeing it even below 20 employees, where they're looking for some support in recruiting, hiring, onboarding their clients, bringing them into their business. I do think there is more positive environment where they look to buy solutions that are going to help them hire. We certainly get a lot more interest. And really, our go-to-market approach is much more now: a, what are your HR solution that you need? Do you need help with recruiting, time and attendance, onboarding your new employees, background checks on the whole hiring phase of it? We have a lot of interest in that, so I do think that they're feeling a little bit more positive about the hiring that's going forward. Compliance always does play a very important role though. The biggest impact when you're trying to go over value with a client is being out of compliance with the number of changes that's going on right now. And while it may seem like federal regulations are going -- are decreasing or going to be decreasing, we are seeing a big ramp-up of state regulation, which are going to make it even more difficult for clients to comply if they're multistate employers.

Got several questions. First, I'd like to start off with, based on what you're currently seeing, what solutions -- what solution area are you the most excited about selling, do you think has the best prospects right now?

Well, Mark, I think overall, it's that -- it's the HR bundle, it's having the ability to go into our clients and help them, not from just the payroll side, but from complete -- from the fact of how do they recruit, staff their positions, onboard their employees, handle time and attendance right through to total HR outsourcing. I think what we really like now is we built this bundle, whether you're a small or a mid-sized client, that is fully integrated and allows you to have really kind of a seamless hire to retire, I guess we'd say, and in all levels of the company, and you're on one platform. So the fact that you can go from having 15 employees to adding labor distribution to adding anything, the feature functionality you want, and grow to 50 or 60 and still be on the same platform without moving is -- we're very excited about. We see a lot of -- as we mentioned, a lot of interest in time and attendance so we've had great solutions there, including the scaled-down Essentials version for smaller clients. And so I -- we're very excited about all the products. Really, we have the offer and the level of technology and software-as-a-service and the service options that we offer now, 7 by 24 web chat, et cetera, all responding to kind of the -- how quickly the market has changed.

Great. And then with regard to that HR bundle as well as time and attendance, how much of the sales are basically going to the installed base or the effort going to the installed base relative to trying to gather new clients?

A lot of effort on the go-to-market strategy is really to offer those products right up front. The old model for us was payroll and then go back and sell. And now we're -- we've trained the sales team at all levels to sell kind of the whole solution right up front. So we're seeing more sales on the front end, but we still, obviously, with that large base of clients, we're going back in and using a lot of more sophisticated data modeling to go back to clients who we think have a need now or that we missed upfront in selling those. So I'd say it's fairly balanced, but we're doing a lot better on the front end of selling the complete package as opposed to -- because that's what the clients want, by the way, now as opposed to, hey, let me sell you payroll and then come back in with other products later.

Great. And then if I could just go back to the mid-market comments, how they relate to some of those preliminary comments with regards to how to think about next year and to setting up the right expectations, and then finally, just on the PEO side. So the question on the mid-market would basically be, was it a particular end of the mid-market? In other words, was it the low end of the mid-market where you're just getting up to 50 employees? Or was it more on the 200 to 300? Or was it across the board? And is there any reason why that hesitation that's out there would change, other than maybe we just have some resolution from a legislative perspective?

I think it was kind of across the board. But I would say in the higher end, when you got up into the higher sizes, there seems to be a little more hesitation and less sales going on right there from -- compared to what we had expected and when you compare it to last year. And I think -- I do think that -- when you have this administration and the amount of change we're going through, if they had already bought last year, they don't need to necessarily buy this year. They accelerated their buy. And this year, I think they're kind of waiting to see. I don't think we've had a time in our history where you've seen the -- kind of that much consternation in 6 months or so of overtime rules happening, not happening. Got to have a solution, don't have to have a solution. ACA, have it, don't have to have it, now have to have it. So I think there is -- does seem to be just kind of a very interesting kind of sluggishness about making a final decision in it. I would say it's not necessarily hanging right at that 50. It's a little bit higher. It might even be in that 100-plus type of thing. And I'm sorry, and then the question...

Yes, and just related to that, just when we think about core payroll and HRS, you talked about some initial thoughts for next year. I just want to make sure I interpreted it correctly. In terms of -- for next year, Efrain, you mentioned kind of on the payroll staying where we currently are. Do you mean where we are here in the second half of this fiscal year? Or where we are for the full year?

Yes. So I think you can figure out what the underlying run rate is, excluding Advance. That puts us somewhere between 2% to 3%. That would be my initial thinking about where we go out next year, subject to a lot of further conversation. And then you had a question on the PEO, Mark.

So what I said was there's 2 headwinds we'll battle next year: One is, you won't see the level of growth that we've been seeing on the Affordable Care Act compliance product going into next year. That now anniversaries and starts to look a little bit more like a run rate business, depending on how much we sell or lose in a given year. So you won't see that boost to growth. And then PEO is a wildcard. So we saw less -- I forgot who asked the last question. We saw less health care attachment but very lumpy, hard to predict where. So we saw some very large client attach health care, and then we saw a lot of the smaller ones not attach health care. That, we're going to have to just work through the rest of the year to figure out what our assumptions are there.

Great. And then I think you addressed the PEO, which is basically that you're basically seeing a little bit less health care attachment with some clients, and so -- but that's really more of a pass-through as opposed to affecting your true underlying economics.

It is. That's correct. It will, but it does affect revenue. So I'm attempting to be responsive as I normally am to fair questions, understanding that we haven't gone through even a budget process yet. So -- but I do think those are trends that we're seeing in the business at the moment.

When you look out over a multiyear time frame, can you just talk about a bit how you're sort of -- you think about the investments you're making, either to grow your client base versus selling more ancillary services and add-on modules and gaining wallet share within your existing clients? Sort of how do you balance those? And then depending on which one, what are some of the initiatives behind that? Meaning additional modules you've got coming down the pike or specific initiatives to reaccelerate client growth.

Yes, I think it kind of -- the investment is spread by size and so forth. I think we're feeling good about the products that we have, frankly, very competitive. And we're at that stage where a lot of the investments we've made over the last 5 years, and particularly the last couple of years, it really integrated the product set and in all levels to allow that kind of full -- as much of the human capital management solution as you want, whether you're 10 employees or whether you're 200. And we feel good about those. I think what you'll see is our -- a continuation of investment in user interface, in the interface and making it easier on the small and even easier to use the mobile apps. We're going mobile first in everything that we have, and we're building and developing now. And so everything is going to be very easy from the mobile app. And you're seeing everything kind of be mobile first from us. And you're seeing a much larger adoption of our mobile app and the use of that, not only from clients but employees as well. And I think we've talked about this before. Seeing a large use of the FI employees has turned out to be a good retention tool for us as well because they get used to it. They like to get the pay stubs that way, et cetera. And the employer's less likely to change. But I think the investments are also at the mid-market level where you're seeing more product set. I think we have pretty much a full-service solution there with everything that clients need, but we'll always be looking to add more as we see a changing market dynamic in what they're looking for.

All right. At this point, we'll close the call. If you're interested in replaying the webcast of this conference call, it'll be archived for approximately 30 days. Thank you for the time to participate in this third quarter press release conference call and for your interest in Paychex. Have a great day.